Last week I talked about the 401K plan and how shared an example explaining how your 401k plan contribution can earn you a 25% return on investment.
Today, I want to continue with that conversation and how to explain how an independent contractor or self-employed person can save even more taxes by investing in their solo 401k plan.
A.) How much money can you contribute to your solo 401k plan?
B.) What are some of the limitations with a solo 401k plan?
C.) Where to open a solo 401k plan?
D.) How much does it cost to open a 401k plan?
E.) What kind of tax benefit you can get by investing in your 401k plan?
We have about 2 months before the end of this tax year. Self-employed personals can contribute up to $50,000 to their solo 401k plan and reduce their tax liability accordingly.
There are fees associated with the solo 401k plan, but you can borrow funds from your 401k to help you with cash flow and you can pay the money back within 5 years. You can also move the 401k plan to another company in the future. In the video, I will tell you how you can open a solo 401k plan for free.
A self-employed person with income of $75,000 will have to pay about $7500 in federal income tax. However, this person can contribute up to $30,941 to the solo 401k plan and reduce the federal income tax to only $2,304. Savings of over $5000.
Moreover, a contribution to a 401k plan can be made as profit sharing. In this case, Up to $13,941 can be contributed as profit share further reducing the tax to about $600.
In other words, you can earn up to $75,000 and pay almost no federal income tax if you contribute fully to your 401k plan and take advantage of a few other deductions.
This is a good time to review your retirement account for the year 2012. Single tax filers can contribute up to $17,000 to their 401k retirement plan. Contributing to your 401k can significantly reduce your tax liability for the year 2012.
1099 Contractors and Small Business Owners can also reduce their tax liability by taking advantage of various retirement plans. You still have time to set up a proper retirement plan for this year and save thousands of dollars in taxes.
Want to come in for a consultation to discuss your retirement plan? Please make sure to bring your retirement statement and current year income statement.